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Wake-up call for employers on complex ACA information reporting requirements

The Summer, 2015, issue of the SSA/IRS Reporter, a Newsletter for Employers, carries an important reminder that employers subject to the Affordable Care Act’s (ACA) employer shared responsibility (ESR) provisions should already be tracking the data they’ll need to file complex information reporting forms early in 2016. The newsletter cautions that many employers will need close coordination of their payroll, human resources, and benefits departments because each probably controls the system housing some of the information that must be reported.

Background on employer shared responsibility penalty rule for 2015. The ESR provisions apply only to applicable large employers (ALEs), generally defined as an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. (Code Sec. 4980H(c)(2))

There are transition rules for the ESR that apply for 2015. For 2015 (and for employers with non-calendar-year plans, any calendar months during the 2015 plan year that fall in 2016), an ALE that had at least 100 full-time employees (including full-time equivalents) in 2014, is liable for an ESR payment only if:

A. The employer does not offer health coverage or offers coverage to fewer than 70% of its full-time employees and, generally, the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace. (This is referred to as Code Sec. 4980H(a) liability.) A company liable under Code Sec. 4980H(a) must, for each month, make an ESR payment equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit for that month.
B. The employer offers health coverage to at least 70% of its full-time employees and, generally, the dependents of those employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace. This may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value. (This is referred to as Code Sec. 4980H(b) liability.) The Code Sec. 4980H(b) ESR payment equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000. The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 80) multiplied by 1/12 of $2,000.

After 2015, the percentages in (A) and (B), above, will rise from 70% to 95%.

ALEs that employed on average at least 50 full-time employees (including full-time equivalents) but fewer than 100 full-time employees (including full-time equivalents) on business days during 2014, won’t be liable for the ESR penalty under Code Sec. 4980H(a) or Code Sec. 4980H(b) , for any calendar month during 2015 if they meet the conditions below. For employers with non-calendar-year health plans, the relief applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.

1. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2014, the employer didn’t reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief. However, an employer that reduced workforce size or overall hours of service for bona fide business reasons is still eligible for relief.
2. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2015 (or, for employers with non-calendar-year plans, ending on the last day of the 2015 plan year), the employer does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. An employer won’t be treated as eliminating or materially reducing health coverage if:

  • it continues to offer each employee who is eligible for coverage an employer contribution toward the cost of employee-only coverage that either (A) is at least 95% of the dollar amount of the contribution toward such coverage that the employer was offering on Feb. 9, 2014, or (B) is at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on Feb. 9, 2014;
  • in the event of a change in benefits under the employee-only coverage offered, that coverage provides minimum value after the change; and
  • it does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees’ dependents) to whom coverage under those plans was offered on Feb. 9, 2014.

For other forms of specialized transition relief for 2015, see Weekly Alert ¶  8  03/12/2015.

ALEs must file information returns in 2015. The Summer, 2015, SSA/IRS Reporter reminds employers that beginning in 2016 (for calendar year 2015) all ALEs must report to IRS and provide statements to all full-time employees certain information regarding coverage offered to full-time employees, including whether the coverage offered met the minimum value requirements (filing was voluntary for calendar year 2014). Following a procedure roughly akin to that for Filing Forms W-2 (Wage and Tax Statement) and W-3 (Transmittal of Wage and Tax Statements), ALEs must file the following forms:

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. This form reports information about health insurance coverage offered and any safe harbors or other relief available to the employer, or reports that no offer of coverage was made. It also reports enrollment information from employers who offer self-insured plans and information about employees and individuals who enrolled in minimum essential coverage. Much like the Form W-2, the Form 1095-C gives employees the information they need to complete their returns (i.e., whether they are eligible for the premium tax credit) and helps IRS determine if the employer potentially owes an ESR payment to IRS. (Summer, 2015, SSA/IRS Reporter, IRS Pub. 5196, Understanding Employer Reporting Requirements of the Health Care Law)

To complete Form 1095-C, employers will need to assemble the following data:

  • Who is a full-time employee for each month.
  • Identifying information for employer and employee, such as name and address.
  • Information about the health coverage offered by month, if any.
  • The employee’s share of the monthly premium for lowest-cost self-only minimum value coverage.
  • Months the employee was enrolled in the employer’s coverage.
  • Months an affordability safe harbor applies for an employee and whether other transition relief applies for an employee for a month.
  • If the employer offers a self-insured plan, information about the covered individuals enrolled in the plan, by month. (IRS Pub. 5196, Understanding Employer Reporting Requirements of the Health Care Law)

Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. This form functions like a Form W-3, in that it provides a summary to IRS of aggregate employer-level data. Form 1094-C also helps IRS determine whether an employer is subject to an ESR payment and the proposed payment amount. For ALEs that have different divisions, each may file a 1094-C for each entity, but one must be marked as an authoritative transmittal and provide data on all the Forms 1095-C filed by the ALE. (Summer, 2015, SSA/IRS Reporter, IRS Pub. 5196, Understanding Employer Reporting Requirements of the Health Care Law)

To complete an authoritative transmittal on Form 1094-C, an ALE must report:

1. whether coverage was offered to 95% (70% for 2015) of its full-time employees;
2. the total number of Forms 1095-C that it issued;
3. the number of full-time employees and total number of employees by month;
4. if applicable, information about members of the aggregated ALE group; and
5. whether the ALE qualifies for transition relief. (IRS Pub. 5196, Understanding Employer Reporting Requirements of the Health Care Law)

As is made clear by the Summer, 2015, SSA/IRS Reporter, the Instructions to Forms 1094-C and 1095-C, and IRS Pub. 5196, an ALE must file these information returns in 2016 for the 2015 year even if it is not liable for the ESR penalty for 2015.

For calendar year 2015, Forms 1094-C and 1095-C must be filed by Feb. 29, 2016 (or March 31, 2016, if filing electronically). Form 1095-C must be furnished to the individual by Feb. 1, 2016.

RIA observation: An IRS spokesperson has indicated that ALEs can file requests to extend the filing deadline for Forms 1094-C and 1095-C. Employers will be able to request an extension of the information return filing deadline with IRS on Form 8809, Application for Extension of Time To File Information Returns. See Weekly Alert ¶  4  03/12/2015.

Teamwork, teamwork, teamwork. The Summer, 2015, SSA/IRS Reporter stresses that a company’s payroll, HR, and benefits staffs will have to work together to assemble the voluminous data needed to file Forms 1094-C and 1095-C.

For example, the payroll department will have the necessary information concerning the W-2 wages or rate of pay needed to determine the affordability of the offered coverage if the employer relies on one of the available affordability safe harbors. HR or Benefits will likely have the data on the lowest-cost self-only minimum value coverage that was offered by the employer.

There are other data elements that one department or the other must be able to provide. For instance, HR may have the data to determine whether a newly hired full-time employee was in a waiting period before an offer of coverage was made, while a time and attendance system may be used to determine whether an employee who has shifting schedules qualified as a full-time employee throughout the reporting period.

For employers that are self-insured, additional data elements that must be provided may be especially difficult to track. Self-Insured ALEs must report the name and SSN of all the individuals covered by the employee’s choice to enroll in employer-provided health coverage (employee, spouse and/or dependents). If an SSN is not available for a covered individual, the ALE may report the individual’s birthdate instead. This is information that the ALE may not have and will need to get from the employee or a third-party administrator prior to completing Form 1095-C. Either payroll or HR may be asked to solicit this information.

References: For the excise tax imposed on large employers not offering affordable health insurance coverage, see FTC 2d/FIN ¶  H-1175  et seq.; United States Tax Reporter ¶  49,80H4; TaxDesk ¶  812,301  et seq.; TG ¶  7317.

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